Merck & Co., Inc.'s (NYSE:MRK) CEO Compensation Looks Acceptable To Us And Here's Why

Key Insights

• Merck will host its Annual General Meeting on 28th of May
• Salary of US$1.60m is part of CEO Rob Davis's total remuneration
• The total compensation is similar to the average for the industry
• Merck's total shareholder return over the past three years was 94% while its EPS was down 22% over the past three years

The share price of Merck & Co., Inc. (NYSE:MRK) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. Some of these issues will occupy shareholders' minds as the AGM rolls around on 28th of May. It would also be an opportunity for them to influence management through exercising their voting power on company resolutions, including CEO and executive remuneration, which could impact on firm performance in the future. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

See our latest analysis for Merck

How Does Total Compensation For Rob Davis Compare With Other Companies In The Industry?

According to our data, Merck & Co., Inc. has a market capitalization of US$332b, and paid its CEO total annual compensation worth US$20m over the year to December 2023. That's a notable increase of 8.7% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at US$1.6m.

In comparison with other companies in the American Pharmaceuticals industry with market capitalizations over US$8.0b, the reported median total CEO compensation was US$18m. From this we gather that Rob Davis is paid around the median for CEOs in the industry. What's more, Rob Davis holds US$46m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component	2023	2022	Proportion (2023)
Salary	US$1.6m	US$1.5m	8%
Other	US$19m	US$17m	92%
Total Compensation	US$20m	US$19m	100%

On an industry level, roughly 29% of total compensation represents salary and 71% is other remuneration. It's interesting to note that Merck allocates a smaller portion of compensation to salary in comparison to the broader industry. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

A Look at Merck & Co., Inc.'s Growth Numbers

Merck & Co., Inc. has reduced its earnings per share by 22% a year over the last three years. In the last year, its revenue is up 6.1%.

Few shareholders would be pleased to read that EPS have declined. The fairly low revenue growth fails to impress given that the EPS is down. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Merck & Co., Inc. Been A Good Investment?

Boasting a total shareholder return of 94% over three years, Merck & Co., Inc. has done well by shareholders. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.

To Conclude...

Although shareholders would be quite happy with the returns they have earned on their initial investment, earnings have failed to grow and this could mean returns may be hard to keep up. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 4 warning signs for Merck that you should be aware of before investing.

Switching gears from Merck, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.